MADISON, Wis. (AP) — Gov. Scott Walker's administration told the Legislature on Tuesday that modest economic growth coupled with "frugal management" means Wisconsin is poised to end the two-year budget cycle in June with a net $283 million surplus.
Department of Administration Secretary Mike Huebsch laid out the figures in a letter required under the law that was delivered to Walker and the Republican-controlled Legislature. The memo gives the clearest picture yet of the state's financial condition heading into next year, but the figures will be further refined by the nonpartisan Legislative Fiscal Bureau in January. Walker in February will release his budget covering July 2013 through June 2015.
Assembly Democratic Minority Leader Peter Barca urged caution in reading too much into the numbers since they were produced by the Walker administration.
"These budget projections resemble Swiss cheese: They are so full of holes," Barca said. "Many factors are not taken into consideration here in order for them to paint a rosy surplus picture."
Walker and Republicans leaders have said they want to cut income taxes as part of the next budget. Making room for that, while at the same time providing the money necessary to operate prisons, pay for Medicaid programs, provide aid to schools and meet all the other expenses of state government, will dominate debate in the Legislature for much of next year.
Democrats, who don't have the votes to stop what Walker and Republicans want, have said increasing funding for schools and higher education needs to be prioritized, along with putting more money into Medicaid and middle class tax relief.
Walker's last budget, which cut funding for K-12 schools by about $800 million and required public workers to pay more for health insurance and pension benefits, sparked massive protests in Madison and spurred the failed attempt to recall the governor from office.
"Is Scott Walker going to try to undo that damage with this supposed surplus he has or is he going to continue to give it to tax breaks for the very wealthy?" said Democratic state Rep. Cory Mason, a member of the Legislature's budget committee. "That's the real value question we're going to have moving forward."
Incoming Republican Assembly Speaker Robin Vos said the numbers show the state is on the right track.
"We can now realistically consider income tax reform and relief for every taxpayer," he said.
Huebsch said the state was seeing signs of a steady, but not spectacular, economic recovery.
"Wisconsin's economy continues to mirror the national economy in climbing out of the steep economic hole and, looking forward, seems to be gathering strength before a more full-throttled recovery is evident," Huebsch said in the letter.
While Tuesday's letter was chock full of positive news, it did come with a couple of major caveats. Huebsch warned that the state's economic recovery could be extinguished or delayed if Congress does not avoid the so-called "fiscal cliff" in January. He also cautioned that it was unknown how implementation of President Barack Obama's health care overhaul would affect the state budget.
Walker last week ceded authority to the federal government to set up the virtual marketplace, known as an exchange, to connect Wisconsin consumers with private health insurance plans under the Affordable Care Act. Walker said then he didn't want the state to take on the exchange not knowing how much it could cost to operate it.
Walker has also been mum on whether Wisconsin will expand Medicaid coverage as allowed, but not mandated, under the federal law.
Even with those caveats, the memo paints a far rosier picture of the state's economy than Wisconsin has seen in years.
Two years ago at this time, as Walker prepared to come into office, the state faced a roughly $3 billion budget shortfall. This year the state has a net $277 million surplus, the largest since 2001, Huebsch said.
State agency spending requests for the next two-year budget exceed expected revenues by about $171 million, a negligible difference in the scheme of a $67 billion budget. The additional spending requested amounted to a 2.8 percent increase in the first year of the budget and 1.4 percent in the second.
The memo relays Department of Revenue estimates that show tax collections are projected to increase 1.8 percent this year, 3.8 percent next year and 3.5 percent for the budget year that begins in July 2014.
"Heading into the next budget we are in the unique position of having anticipated surpluses, increased revenue, and projected economic growth," Walker spokesman Cullen Werwie said in a statement.